WASHINGTON — Judge John Robert Blakey of the US District Court for the Northern District of Illinois on May 13 ordered Kraft Foods Group, Inc. (now operating as Kraft Heinz Co.) and Mondelez Global LLC to pay a $16 million penalty as part of a settlement with the US Commodity Futures Trading Commission (CFTC).
The CFTC on April 1, 2015, filed a complaint alleging that in response to high cash wheat prices in late summer 2011, Kraft and Mondelez developed, approved and executed a manipulative strategy to purchase and stand for delivery on more than 3,000 December 2011 futures contracts (worth about $90 million) of soft red winter wheat to send the market a false signal that the defendants had demand for — and would use — futures wheat to source the defendants’ wheat supply requirements in their Toledo, Ohio, mill. The complaint alleged that, in fact, Kraft and Mondelez had no intention of sourcing wheat from the futures market, and the $90 million of wheat futures at issue far exceeded their actual sourcing needs.
The CFTC alleged that Kraft’s and Mondelez’s true goal was to narrow the price spread between the December 2011 and deferred-month wheat futures contracts, thereby causing the market to sell cash wheat to Kraft and Mondelez at lower prices, while earning a profit on their speculative futures positions. The complaint further alleged that Kraft’s and Mondelez’s actions caused an artificial price that ultimately earned them more than $5 million in profits.
The defendants filed their answer on Jan. 15, 2016, “and have denied that they (1) used or attempted to use a manipulative or deceptive device in connection with the December 2011 wheat futures contract … as alleged by the CFTC; (2) manipulated or attempted the price of the December 2011 wheat futures contract and of cash wheat as alleged by the CFTC; (3) unlawfully held December 2011 wheat futures positions in excess of speculative position limits as alleged by the CFTC; and (4) engaged in wash sales or fictitious sales by trading both sides of EFP contracts as alleged by the CFTC.”The $16 million penalty is approximately three times defendants’ alleged gain. The order also enjoins Kraft and Mondelez from engaging in future violations of the manipulation, wash trade, and position limit provisions of the Commodity Exchange Act and CFTC regulations charged in the complaint.